Profit equals Income minus Expenses. Grade schoolers can tell you as much. The goal of any business is to maximise its profits and as the last line clearly posits, there are two ways to go about it. Either you can increase your income, or you can reduce your expenses. Increasing income is a topic for another time but we are going to see how we can reduce our business expenses to maximise profit. However, minimising your business expenses is easier said than done.

There are a number of factors which affect the expenses incurred by a business venture. Some expenses are essential and cannot be removed or reduced. These essential expenses are crucial in keeping the business afloat and profitable. It is crucial that in the rush of minimising expenses across the board you end up cutting these essential expenses.

However, there are a number of ancillary costs that are incurred which provide plenty of room for adjustment. Making your business a more streamlined and efficient operation is a task in itself and when done properly can shave off a pretty significant amount from your annual expenses. Here are 5 ideas on how you can cut costs and reduce business expenditures.

CONSOLIDATE YOUR PURCHASES

If you are purchasing different items from different sources, try to consolidate them into one source. This allows you to optimise your expenses and allows you to claim discounts for bulk purchases. Not all purchases can be consolidated this way but you will be surprised how many suppliers are able to provide you with goods that you might not have guessed. Talk to your suppliers about your needs and wants and ask them what they can do for you. Businesses still by a large margin work on trust and simple communication between partners can result in large cost savings.

LEVERAGE COMPETITION

A supplier who provides you with a lower rate is not always the obvious choice; there are a number of factors that govern business relationships. Unless your purchase is a one-off deal, chances are that you would like to maintain your supplier for the long run. Therefore, it is a better deal to make a little more if it means maintaining good relationships. However, you can always leverage competition to your advantage. See what rates the competition is offering and give your supplier the opportunity to match it.

KEEP AN EYE ON YOUR HUMAN RESOURCES

Payroll is by a fair margin the largest chunk of expenses incurred by businesses. However, in the long run, employee retention is more important than the outright expenses. By employing the right people and retaining them for as long as possible, you get yourself in a much better position. Ensure your pay is fair since inadequate pay is by far the most common reason why people quit their jobs.

DO NOT BUY IN BULK

Bulk purchases offer cost savings but have other demerits, storage costs and reduced cash flow being the chief among them. Have your suppliers hold onto stock instead of taking charge. You might pay more in the short term, but the savings from elsewhere will more than make up for that.

NEGOTIATE FREQUENTLY

At the end of the day, you are running a business. Do not be afraid to negotiate aggressively and often. Negotiating allows you to leverage your strengths and get a better rate. Be fair in your negotiations and you will retain both your bottom line and your business relationships.

 

References:

http://www.dynamicbusiness.com.au/small-business-resources/finance-cash-flow/30-ways-to-cut-business-costs.html

Seven ways to cut the cost of running your business